PAYE Employer Error - what would you do?

PAYE Employer Error - what would you do?

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I have a client who has just received PAYE underpayment notifications for 2013/14 & 2014/15 tax years. Both of which have been caused by his employers operating the wrong tax codes when he changed jobs:

2013/14 on JSA until June, starts working for an employer who has two businesses (sole trader business and Ltd company business) two totally seperate trades but payroll is operated by the same in-house accounts team. He starts work on 01/07/13 for sole trader, gives them his JSA P45 & the pay & tax details are included in his previous pay and he is given tax code 944L. So far so good.

In Feb 2014 he is transferred to Ltd company payroll. He is set up on tax code 944L again but this time no previous pay details are included. He therefore underpays tax as he has received his £9,440 tax free allowance twice. None of the pay in this empliyment incurs any tax deductions.

In 2014/15 he continues working for Ltd company until mid June when he is transferred back to the payroll of sole trader. Same thing happens. Tax code of 1,000L is issued and operated for the second employment but the previous pay isn't entered.

If my client hadn't given a P45 to the new employers a 944L / 1,000L tax code should have been on a week 1 / month 1 basis but on both occassions they were operated on a cummulative basis.

Question is, would you recommend reporting this as employer errors to HMRC and, if so, what is the likely outcome? Do HMRC look to reclaim the tax owed from the employer or is my client stilllikely to be liable for the underpayments? My client has received too much net pay so has effectively benefitted but was unaware of this at the time & has just been laid off and isn't in a position to pay the tax due.

Any advice from anyone who has been in a similar position would be gratefully accepted.

 

Replies (14)

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By Marion Hayes
09th Dec 2016 12:27

I would appeal on the grounds of repeated error by employer in circumstances an unrepresented taxpayer could not be expected to realise anything was going wrong.
I would also argue that there has been a failure to make timely use of information held since at the latest May after each 5th April

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Johny Fartpants Picture
By johnny fartpants
09th Dec 2016 12:36

Thanks Marion. Re the timely use of information issue, to be fair to HMRC, they wrote to my client requesting confirmation of the PAYE details. My client ignored the letters hence was put into self-assessment. This is his own fault, however I think the underpayments have been created by his employers' errors.

Thanks again for the advice.

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By SteveHa
09th Dec 2016 12:37

I disagree, Marion. Whilst it isn't stated implicitly in the OP, I suspect that the rate of pay was the same whether working for sole trader or limited. If it was, then the client new that tax deductions were being made prior to the change of payrolls, and then either stopped or reduced considerably.

The question is what a reasonable taxpayer in his shoes would know. A reasonable taxpayer in his shoes would know that his net pay had suddenly shot up, and would be expected to question it.

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Johny Fartpants Picture
By johnny fartpants
09th Dec 2016 12:56

Hi SteLacca. For the record, the employment for the second employment (Limited Co) was at a higher rate of pay (about £1,500 per month vs about £1,100 per month).

Due to the period of JSA there was very little tax deducted from the first employment and due to the wrong tax code, no tax deducted from the second employment.

Question is whether the man on the Clapham omnibus should realise this is wrong. Again, for the record, my client was an "odd job" man / gardener at this time. Amount of tax underpaid isn't huge (£527) but quite a shock to my client who thought everything was ok because he trusted that PAYE would create this sort of a mess.

Out of interest, what happens with employer errors? Do HMRC pursue the employer, the employee or both??

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Replying to johnny fartpants:
Johny Fartpants Picture
By johnny fartpants
09th Dec 2016 12:58

Sorry, previous post should read "trusted that PAYE would NOT create this sort of mess"!!

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By Marion Hayes
09th Dec 2016 13:06

In my experience if an employer makes a 'one-off' error the taxpayer usually is still liable, It is only where you can show a pattern of errors ( and I think you can here), or can prove correct information was supplied and ignored, the employer is pursued.
I still think SteLacca that where a normal taxpayer, consistently paid through PAYE and having no change in circumstances is entitled to assume that PAYE is being operated correctly. Nor do I agree that it was his responsibility to confirm the Pay & Tax detail - that enquiry should have been directed to the Employer in the first instance.

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Johny Fartpants Picture
By johnny fartpants
09th Dec 2016 13:15

Thanks Marion. That is reassuring. I genuinely think that my client thought everything was ok with his PAYE.

Thanks to you both for the help & advice.

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By kazza1006
21st Apr 2017 18:40

My friend recently received a tax underpayment letter due to incorrect tax code from JSA. As she couldn't pay the amount straight away her employer kindly paid to be paid back as soon as she can but now she has been told this is a benefit so should be declared on a p11d. Is that correct?

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By Matrix
21st Apr 2017 18:53

Is it more than £10k then? Wow.

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Replying to Matrix:
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By kazza1006
21st Apr 2017 19:14

No it was £1k

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By kazza1006
21st Apr 2017 23:26

Sorry if it was unclear. It was a £1k underpayment that the employer paid. But can't get a straight answer if it is a bik? My friend is obviously concerned as she is paying the employer back but then may have to pay tax on that? I can't see a clear answer on hmrc? Can anyone help?

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Replying to kazza1006:
By Ruddles
21st Apr 2017 23:56

Who told you that it would be a BIK and did they give a reason?

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By kazza1006
22nd Apr 2017 08:01

She was told by her employer that it might be classed as a loan

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Johny Fartpants Picture
By johnny fartpants
22nd Apr 2017 08:02

Presumably because it is an interest free employee loan. However it sounds like you are ok as there is an exemption for loans of less than £10,000:

https://www.gov.uk/expenses-and-benefits-loans-provided-to-employees/wha...

Unless I am missing something of course?

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